Accounting for subsidiary

Q20.15 Explain why dividends paid from pre control profits ore reserves are not items of revenue for the controlling parent. How does the parent account for such dividends and what is the effect on the consolidation?

Depending on when a dividend is announced by the subsidiary will determine if the dividend was pre-control or post-control. If a dividend was announced before takeover, then the dividend is pre-control (before the parent company took control).
Pre-control can be described as the owner equity of a subsidiary existing at the moment the subsidiary becomes controlled or existing before an acquisition of the shared of an entity that is already controlled.

Example:
„X Company A purchases company B in 2002 for $25million

„X Company B gives shareholders 10million in dividends from profits in 2001.

In this example Company A took no part in the profits made by company B because the takeover was 1 year after the dividends were declared.
Dividend revenue i...